US Stock Exchanges 4 Assignment 1 Kamran Isayev Kenneth Mett

US STOCK EXCHANGES 4 Assignment 1 Kamran Isayev Kenneth Metts 10.16.2017

The New York Stock Exchange (NYSE) and National Association of Securities Dealers Automated Quotation System (NASDAQ) are the two largest stock exchanges in the United States. Located in New York and Chicago respectively, they dominate the U.S. and global equity markets. NASDAQ is the larger in terms of daily traded volume, with approximately 3,200 listed securities, and is primarily known for technology and growth stocks. Conversely, NYSE hosts more established companies with high trading volumes and a traditional auction-based trading system. This paper compares their operational differences, listing requirements, types of stocks traded, and financial performance, illustrating their respective roles in the stock market ecosystem.

Paper For Above instruction

The New York Stock Exchange (NYSE) and NASDAQ are the two preeminent stock exchanges in the United States, each with distinctive characteristics and operational frameworks. Understanding these differences is essential for investors, policymakers, and scholars analyzing the financial markets.

Operational Structures and Market Types

The NASDAQ functions primarily as a dealer-based, electronic securities market where transactions occur through dealers who buy and sell stocks directly to investors via electronic communications. Its model relies heavily on internet and telephone trading platforms, enabling automated, rapid transactions. The NYSE, in contrast, epitomizes an auction-style securities market, where trades are executed in person on the trading floor through a system of designated market makers called specialists, who facilitate liquidity and price discovery (International Finance Magazine, 2013). This fundamental difference influences trading volumes, speed of execution, and market liquidity.

Listing Requirements and Company Profiles

NASDAQ offers an accessible platform for smaller companies or those seeking to enter the market without meeting the stringent criteria of NYSE. For example, NASDAQ-listed companies need at least 2200 shareholders, a trading volume of 100,000 shares monthly, and a minimum market capitalization of $100 million or $75 million in revenues annually (International Finance Magazine, 2013). NYSE requires companies to meet high standards, including substantial shareholder bases, revenue, and market capitalization, emphasizing stability and seniority in the market.

Types of Stocks and Market Focus

NASDAQ primarily hosts technology firms, startups, and growth-oriented companies characterized by volatility. Notable examples include Apple, Amazon, and Facebook. The exchange is viewed as a bellwether for technological trends and innovation. The NYSE hosts more mature, established firms such as General Electric and Goldman Sachs, with stable, high-turnover stocks that tend to be less volatile. This distinction influences investor perception and risk appetite associated with each exchange.

Market Regulation and Traffic Control

A market controller, known as the market maker on NASDAQ, manages orders and maintains liquidity, providing continuous bid and ask prices. NYSE employs specialists responsible for specific stocks, ensuring fair and orderly trading, handling issues such as order imbalances or volatility (International Finance Magazine, 2013). Both mechanisms are crucial for maintaining market stability but operate through different models reflecting their structural differences.

Financial Performance and Cash Flows

Analyzing companies like 21st Century Fox (FOXA) listed on NASDAQ and Abercrombie & Fitch (ANF) on NYSE reveals insights into their cash flow and profitability. In 2013, FOXA generated USD 2.38 billion in free cash flow, while ANF reported USD 48.75 million. Such data indicates FOXA’s strong cash-generating capacity, supporting shareholder returns and investments. Both companies demonstrate capacity to reward shareholders, though their operational scales and industry focus differ significantly.

Financial Ratios and Investment Indicators

Financial ratios, including liquidity, asset management, and profitability metrics, underscore each company’s financial health. FOXA exhibits high net profit margins (25%) and return on equity (~34%), signifying robust profitability (MorningStar, 2017). ANF, while profitable, shows lower margins, indicating more volatile or less efficient operations. These metrics are vital for investors assessing risk and return potential in stocks listed on NASDAQ and NYSE.

Strengths, Weaknesses, and Market Challenges

Both exchanges’ listed companies exhibit strong management of assets and profitability, making them attractive for investors. FOXA’s effective asset utilization and high margins suggest a competitive edge, while ANF’s solvency and liquidity ratios support its resilience. However, challenges persist; for FOXA, improving total asset management could boost margins, while ANF needs strategies to enhance profitability and reduce volatility to attract long-term investors (MorningStar, 2017). Market volatility also relates to external factors like industry-specific risks and macroeconomic shifts, impacting stock behaviors on both exchanges.

Conclusion

In conclusion, NASDAQ and NYSE serve complementary roles in the financial ecosystem, differentiated by operational models, listing requirements, and targeted company profiles. NASDAQ’s focus on technology and growth companies, combined with its electronic trading system, contrasts with the NYSE’s emphasis on established, high-capitalization firms traded through auction-based mechanisms. Both exchanges contribute significantly to market liquidity, price discovery, and investor opportunities, adapting continually to technological and regulatory changes within the evolving global financial landscape.

References

• International Finance Magazine. (2013). Difference Between the Two Largest Stock Exchanges in the U.S. Retrieved from https://internationalfinancemag.com/difference-between-the-two-largest-stock-exchanges-in-the-u-s/
• MorningStar. (2017). Abercrombie & Fitch Co Class A. Retrieved from https://www.morningstar.com
• MorningStar. (2017). Twenty-First Century Fox Inc Class B. Retrieved from https://www.morningstar.com/
• U.S. Securities and Exchange Commission. (2020). Guide to the New York Stock Exchange. SEC.gov.
• NASDAQ. (2021). Listing Requirements. Nasdaq.com.
• NYSE. (2021). Listing Standards. NYSE.com.
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